Square has finally closed its fourth round of funding, which values the three-year-old company at a jaw-dropping $3.25 billion.

The payments company is perhaps best known for allowing small businesses, such as taco trucks and taxicab drivers, to accept credit and debit cards using their mobile phones. It is also well known because its CEO, Jack Dorsey, is also a founder of Twitter.

Square is issuing a modest three-paragraph press release this morning announcing the details, which is ironic given the round’s massive size.

A spokesman said that Square has raised more than $200 million in the round, although he would not confirm the company’s valuation. However, according to sources familiar with the deal, Square is now valued at an eye-popping $3.25 billion. That’s slightly less than the $4 billion valuation we reported it was seeking back in April.

The funding will help the company continue to grow, including plans for international expansion later this year.

In an interview several weeks ago, Square COO Keith Rabois said that the company plans to start marketing itself aggressively. It already has commercials on TV, and a wide-ranging deal with Starbucks announced last month will also help. Starbucks said then that it would invest $25 million into the company, and start using the funds to process all of its debit and credit transactions in the U.S. Starbucks will also allow its customers to pay for their lattes using Square’s consumer-facing app.

To date, Square has raised around $340 million, money it will surely need if it hopes to disrupt something as large as the payments industry. So far, it has started to make a dent.

A year ago, Square had about 150 employees and was processing more than $1 billion on an annual basis. Today, it has 400-plus employees and is processing more than $8 billion a year. Rabois said he expects the company to hire 100 more employees by the end of the year.

PayPal, which was also looking to disrupt the banking industry by enabling peer-to-peer payments online, was sold for $1.5 billion to eBay in 2002, just months after going public at a valuation of nearly $800 million.

At the time it went public, the company was approximately doubling year over year, and had generated $103.7 million in 2001, its first full year of operations — slightly less than Square’s estimated revenue ($122 million).

Much like PayPal back then, Square faces intense competition, so making alliances with much larger companies or raising big war chests is critically important.

And it is still possible to compare Square to a modern-day PayPal. PayPal has said it is expecting to transact $10 billion in mobile payments volume this year, which is $2 billion more than what Square is processing on an annual basis. And, as with Square, nearly 100 percent of PayPal’s mobile transactions are occurring on the phone, but it is quickly ramping up its in-store payments business, too.

AllThingsD by Writer

AllThingsD.com is a Web site devoted to news, analysis and opinion on technology, the Internet and media. But it is different from other sites in this space. It is a fusion of different media styles, different topics, different formats and different sources. Read more »